Do you have a large amount of outstanding accounts receivable? Are the slow payments hurting your cash flow and effecting business operations? If so, accounts receivable financing may be the solution for you. This type of financing allows businesses to borrow money against their unpaid invoices.
In this guide, we will explain what accounts receivable financing is, who can qualify for it and more!
What is Accounts Receivable Financing?
Accounts receivable financing is a type of business loan that allows you to borrow money against your unpaid invoices. This can be a great solution for businesses that are struggling to make ends meet because of their outstanding invoices. With this type of financing, you can get the money you need to keep your business running smoothly.
How Does Accounts Receivable Financing Work?
To qualify for accounts receivable financing, you must have outstanding invoices that are due from credit worthy customers. Once you have been approved for financing the lender will advance you a percentage of the total value of your invoices. You can then use this money to pay for expenses, such as inventory or payroll. Once your customer pays your invoice, the loan is repaid to the lender plus interest and fees.
Pros & Cons of Accounts Receivable Financing:
AR financing comes with its pros and cons.
Pros of Accounts Receivable Financing:
- Quick access to financing – this type of financing can be approved quickly, which means you can get the money you need right away.
- Flexible repayment terms – with accounts receivable financing, the loan is repaid based on your invoice terms. This flexibility can be helpful if your cash flow is unpredictable.
- Credit protection – Under a non-recourse accounts receivable financing program, you will also receive credit protection against your customer’s inability to pay.
Cons of Accounts Receivable Financing:
- Potentially higher interest rates – because accounts receivable financing is not a standard bank loan, there is the potential for higher fees and rates.
- Factoring fees – when you finance your invoices, you will typically have to pay factoring fees. These fees can range from 0.5-2%.
How to Get Started with Accounts Receivable Financing
If you are interested in accounts receivable financing, the first step is to speak with one of our representatives. We will be able to answer any questions you have and help you get started with the process. Thanks for reading and we look forward to helping you grow your business!